Audit | Accounting homework help

Question 1

The following are situations that may violate the Code of Professional Conduct. Assume, in each case, that the CPA is a partner. Discuss whether the facts in any of the situations indicate violations of the Code of Professional Conduct. If so, identify the nature of the violation(s). A. Contel, CPA, advertises in the local paper that his firm does the audit of 14 of the 36 largest community banks in the state. The advertisement also states that the average audit fee, as a percentage of total assets for the banks he audits, is lower than any other CPA firms in the state. B. Davis, CPA, sets up a small loan company specializing in loans to business executives and small companies. Davis does not spend much time in the business because he spends full time with his CPA practice. No employees of Davis’s CPA firm are involved in the small loan company. C. Elbert, CPA, owns a material amount of stock in a mutual fund investment company, which in turn owns stock in Elbert’s largest audit client. Reading the investment company’s most recent financial report, Elbert is surprised to learn that the company’s ownership in his client has increased dramatically. D. Able, CPA, owns a substantial limited partnership interest in an apartment building. Frederick Marshall is a 100% owner in Marshall Marine Co. Marshall also owns a substantial interest in the same limited partnership as Able. Able does the audit of Marshall Marine Co. E. Baker, CPA, approaches a new audit client and tells the president that he has an idea that could result in a substantial tax refund in the prior year’s tax return by application of a technical provision in the tax law that the client had overlooked. Baker adds that the fee will be 50% of the tax refund after it has been resolved by the Internal Revenue Service. The client agrees to the proposal. (15 marks)